Although all the complicated lines are still there, now I look at it differently and I understand its usefulness. Notice the two Blue lines which tend to contain all the others — these are volatility bands, similar to Bollinger Bands. For more info on Bollinger Bands, check out this article: The volatility tool for Binary Options. You are probably familiar with this indicator but in case you want a more in depth explanation, read this article: And now we get to the most important line, the one that ties everything together and makes the indicator tradable: This is called the Market Base Line and it acts as a trend indicator.
Here are some potential scenarios: When Green is below Red and both are below Yellow, we will trade Puts. Ok, you are probably half way through your cup of coffee, I am about half way through this explanation and from now it gets easier… sort of. We are going to learn how to approach a trade.
First of all you have to take a look at the Yellow line. Look at the rectangle in the picture above and notice the Yellow line is clearly moving upwards so we are in an uptrend and we only look for Calls. Now remember the paragraph above when I said that for a Call we need the Green to be above Red. Can you spot the trade? Of course the opposite applies for a Put: The Yellow must be moving downwards and the Green must cross below the Red:.
This is pretty important: If you enter the trade before, it might be too soon. Also, look for clear crosses. However, that cross is almost flat and the lines are too far away from the Yellow line. If the market is without clear direction and the Yellow line is flat, trades can be taken in both directions but only if the Green line goes outside the Blue bands and then crosses the Red, coming back inside.
Eh, that question is simple: Even after you get familiar with it, false signals will still be there because the lines cross many times so you need to have a lot of patience before pulling the trigger on a trade. The indicator in the pictures above uses default settings. Simply because this indicator shows you at a glance what condition the market is in. It shows momentum, volatility and direction all in one window and this frees up space which would otherwise be occupied with other indicators.
But the fact that it frees up chart space is not the main strength of the TDI. Although the TDI is mainly used by Forex traders, I believe it could be even better for Binary Options because all we need with binaries are a few pips of movement. Of course this opens the door for expiry duration discussions because as we know, a well chosen expiry time can turn an OTM into an ITM. Tell me what you think about the TDI, ask questions if you have any and share with us new ways of using it.
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